Financial Product Innovations

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Financial Product Innovations Trends

• Rural Family Economic Success Institute
• November 2, 2009

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Financial Product Innovations Trends

• Low-income people need financial services!
• They must be a good market, or the predatory
  lenders wouldnt serve them!
• Some financial institutions are bringing better
  products on line to serve the low-income market.

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A SamplingProducts to Consider and Promote

• Pre-paid cards
• Low cost check cashing
• Credit builder products
• Low cost payday lending
• Free tax filing other options to RALs

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Pre-paid Cards

• Consumers can load their money on the card at
  participating banks, check-cashing facilities or
  credit unions.
• Pre-Paid cards can be used to pay bills,
  mortgages and purchase groceries, or to buy
  products on line.
• No overdrafts are permitted.
• Pre-paid cards allow consumers to securely carry
  on vital financial transactions without an active
  checking account or a without a credit check
• You can monitor your card uses and balances on
  line.

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Pre-paid Cards

• Check local banks, credit unions or others to see
  if they offer them.
• Online account provider netSpend
  www.netspend.com
• Local vendor that helps set up prepaid card
  services Pemco www.pemcotech.com

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Alternatives to Check Cashing

• About 106 million Americans do not have bank
  accounts.
• Many are on Chex Systems and cannot obtain an
  account.
• Chex Systems a national reporting system that
  rates peoples check-writing reliability like a
  credit report
• Check cashing stores used to be their only
  option
• but their fees are very high

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Alternatives to Check Cashing

• Some banks and credit unions are creating lower
  cost products and services to help these
  consumers conduct transactions.
• Checkless checking accounts offer low-cost check
  cashing services for second chance customers.
• They charge lower fees per check, much less than
  traditional check-cashing stores.
• Customers have the opportunity to open new
  accounts.

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Alternatives to Check Cashing

• Checkless Checking Example
• Key Bank
• https//www.key.com/html/direct-deposit-checkless
  -account.html

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Alternatives to Check Cashing

• Get Checking
• A financial education course that certifies
  customers can operate a checking account
• Used by Consumer Credit Counseling Services
• Program is designed to help consumers on Chex
  Systems become eligible for 2nd chance accounts
• Six hour seminar
• Students must settle all existing debts and not
  have any fraudulent marks on their Chex Systems
  report before they get certified.

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Alternatives to Check Cashing

• Get Checking http//www.creditservicer.com/pages/c
  hexsystems-help/get-checking.php

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Credit Building

• Many unbanked and underbanked people have poor
  credit or no credit at all.
• Poor credit is a gift that keeps on giving
• Affects ability to get loans, buy homes, rent
  apartments, in some cases get jobs
• One answer is a credit builder CD
• No-risk loan (to the lender) that help customers
  rebuild credit and build assets
• Customer takes out loan to buy a CD
• The CD is pledged as collateral to secure the
  loan
• Customer pays off the loan Regular loan
  payments go on their credit record
• When paid off customer has both savings (the CD)
  and a better credit record.

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Credit Building

• Southern Good Faith Fund www.southergoodfaith.org
• CitiBank https//www.citicards.com/cards/wv/cardDe
  tail.do?screenID940

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Alternatives to Payday Lending

• Payday lending is the practice of making
  revolving, short-term loans at a high cost --
  targeting those who can least afford it.
• As of 2005, there were
• 23,000 payday loans outlets nationwide
• Over 40 billion in loan volume
• Over 6 billion in finance charges.
• As of 2008, 717 locations in Washington State
  (see 2008 Payday Lending Report for more)

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Alternatives to Payday Lending

• Credit unions are leading the way in providing
  lower cost alternatives to payday loans.
• Typically these programs
• Offer credit union membership to borrowers
• Make loans without reviewing credit score or
  history
• Have a moderate maximum loan amount
• Short term installment loan max term of 90 days
• No rollovers and additional loans are permitted
• May open savings account
• May offer financial education

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Alternatives to Payday Lending

• A Better Choice
• Pennsylvania Credit Union Association
• Harrisburg, PA
• www.PaCreditUnions.com
• Common Cents Initiative
• Mountain Association for Community Economic
  Development
• Berea, KY
• www.maced.org
• Stretch Loan
• ASI Federal Credit Union
• Harahan, Louisiana
• http//www.asifcu.org/personal/loans.aspx

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Options to Refund Anticipation Loans (RALs)

• Millions of Americans look forward to tax season.
  They are due a refund and have ideas for how they
  will spend that refund.
• Commercial tax preparers capitalize on the desire
  of customers to receive this money quickly by
  offering RALs.
• These loans have high annual percentage rates
  (APR).
• And if the actual refund is smaller than the
  anticipated amount, the borrower still must pay
  the loan in full.

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Options to Refund Anticipation Loans

• As discussed earlier, free tax preparation
  services can save a significant amount of money
  for patient filers.
• Other options include
• Low-APR RALs offered by some banks and credit
  unions
• Electronic filing with direct deposit almost as
  fast as a RAL

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Useful Resources

• Center for Financial Services Innovation
• http//www.cfsinnovation.com/
• Community Development Banking Listserv
• E-mail communitydevelopmentbanking-l_at_cornell.edu
  with subscribe in the subject line